Westpac New Zealand has tightened its lending criteria for interest-only borrowing by rental property investors, signalling a fresh round of tougher lending standards by Australian banks in New Zealand.The move came as the Reserve Bank of New Zealand prepares a third round of tightened controls for investors and after it suggested banks adopt the spirit of the rules before they are adopted by the end of this year.Westpac New Zealand announced it had reduced its interest-only lending terms for investors from up to 15 years to a maximum of five years.Westpac New Zealand's General Manager of Consumer Bank and Wealth, Simon Power, said the move was designed to prompt customers to reassess their comfort levels with their borrowing."With the way market conditions are we see this as a prudent and timely move. The last thing we want is for customers to overstretch and get into difficulty while interest rates are at historic lows," said Power, who was a former Commerce Minister in the current National-led Government.Westpac New Zealand's move follows an initial round of tightenings launched by the Big Four Australian-owned banks at the beginning of June, when ANZ led a move to reduce Loan to Value Ratio levels for investors in off-the-plan projects and sub-divisions.Reserve Bank Deputy Governor Grant Spencer said in a radio interview on Friday he expected banks to abide by the spirit of new rules the bank was working on. "We want them to enter into the spirit of these things and take a responsible approach ahead of any policy move, and last year when we introduced the Auckland investor LVRs the banks did take a responsible approach," Spencer said."The banks are getting more and more concerned about the risk inherent in this market so I don't think they're going to get carried away," he said.